Asian shares tread water as investors watch trade talks

SHANGHAI (Reuters) – Shares in Asia were flat in early trade on Friday following a fall on Wall Street, with a deteriorating global economic outlook outweighing more signs of progress in trade talks between China and the United States.

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was up less than 0.1 percent.

Investors continue to closely watch high-level talks between U.S. and Chinese trade negotiators in Washington, with little more than a week left before a U.S.-imposed deadline for an agreement expires, triggering higher tariffs.

Reuters reported exclusively on Wednesday that the two sides were drafting language for six memorandums of understanding on proposed Chinese reforms, progress that had helped to lift investor sentiment.

But shares on Wall Street slumped Thursday, pulled down by new data showing weakness in U.S. business spending plans and factory activity.

The Dow Jones Industrial Average fell 0.4 percent to 25,850.63 points, the S&P 500 lost 0.37 percent to 2,774.28 and the Nasdaq Composite – which had climbed the previous eight sessions – dropped 0.4 percent to 7,459.06.

The U.S. Commerce Department said on Thursday that domestic orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7 percent.

Moreover, the U.S. Mid-Atlantic factory sector fell into contraction territory in February for the first time since May 2016, data from the Philadelphia Federal Reserve showed.

“While global manufacturing is weak, services activity is looking more positive. But it is difficult to see manufacturing and services diverging for long,” analysts at ANZ said in a morning note.

“There are strong multiplier effects from manufacturing that imply downside risks to the services sector, particularly in Europe. And trade uncertainty, which is overhanging the manufacturing sector, needs to be resolved.”

The yield on benchmark 10-year Treasury notes edged lower to 2.686 percent Friday, compared with a U.S. close of 2.688 percent on Thursday as a bump from investor optimism about trade talks progress ebbed.

The two-year yield, watched as a gauge of expectations of higher Fed fund rates, eased to 2.5266 percent from a U.S. close of 2.529 percent.

The Australian dollar rebounded after tumbling Thursday on a Reuters report that China’s northern port of Dalian has placed an indefinite ban on imports of Australian coal. It was last up 0.3 percent at $0.7107.

The U.S. dollar was barely changed against the yen at 110.66, while the euro inched slightly higher to buy $1.1340.

The dollar index, which tracks the greenback against a basket of six major rivals, was steady at 96.586

U.S. crude dipped 0.25 percent at $56.82 a barrel.

Gold rebounded after falling more than 1 percent Thursday, with spot gold trading up about 0.1 percent at $1,324.92 per ounce. [GOL/]

(Reporting by Andrew Galbraith; Additional reporting by Richard Leong in NEW YORK; Editing by Richard Borsuk)